Opinion
1 CA-CV 21-0590
07-26-2022
ALVARO MORADO, Plaintiff/Appellant, v. HECTOR BUSTAMANTE, Defendant/Appellee.
Ahwatukee Legal Office, PC, Phoenix By David L. Abney Counsel for Plaintiff/Appellant Waldron Evans PLC, Scottsdale By Robert C. Brown Counsel for Defendant/Appellee
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. CV 2020-000645 The Honorable Bradley H. Astrowsky, Judge
Ahwatukee Legal Office, PC, Phoenix
By David L. Abney
Counsel for Plaintiff/Appellant
Waldron Evans PLC, Scottsdale
By Robert C. Brown
Counsel for Defendant/Appellee
Presiding Judge Jennifer B. Campbell delivered the decision of the Court, in which Judge Randall M. Howe and Judge James B. Morse Jr. joined.
MEMORANDUM DECISION
CAMPBELL, JUDGE:
¶1 Alvaro Morado appeals from the dismissal of his lawsuit, following the grant of summary judgment in favor of Hector Bustamante. Morado sought to enforce an oral lease agreement under which he agreed to rebuild his landlord's rental house in exchange for free rent for 25 years. The superior court concluded that Arizona's contractor licensing statute barred Morado's lawsuit because it prohibits unlicensed contractors from pursuing civil actions "for collection of compensation." A.R.S. § 32-1153.
¶2 The Arizona Residential Landlord and Tenant Act (ARLTA), however, expressly permits the type of rent-and-repair lease Morado sought to enforce. See A.R.S. § 33-1324(C), (D) (authorizing lease agreement requiring tenant to perform specified repairs). Because expecting residential tenants to be licensed contractors is unreasonable and because ARLTA was intended to protect tenants' rights, we construe A.R.S. § 33-1324 to allow residential tenants to enforce rent-and-repair lease agreements, regardless of their licensure as contractors. Because the statute of frauds nonetheless bars some of Morado's claims, we affirm in part, vacate in part, and remand for further proceedings.
We use the term "rent-and-repair lease" to refer to lease agreements that require a tenant to perform "specified repairs, maintenance tasks, alterations and remodeling" pursuant to Subsection C or D of A.R.S. § 33-1324.
We view the facts in the light most favorable to Morado, as the non-prevailing party. See Normandin v. Encanto Adventures, LLC, 246 Ariz. 458, 460, ¶ 9 (2019).
¶3 Before his death, Hector Bustamante's father, Henry Bustamante, owned a home in Tolleson. In 2006, Henry rented the home to Morado to use as his residence. At some point during Morado's tenancy, the home's roof collapsed. After the collapse, Henry and Morado orally agreed that, as alleged by Morado, "[Morado] would pay for the construction of a new building on the property in exchange for the right to own the property for a period of twenty-five years after construction was complete, at which point ownership would revert back to Henry."
We will use the Bustamantes' first names to refer to them individually, when it is necessary to distinguish between father and son, but continue to use "Bustamante" to refer to defendant Hector Bustamante.
¶4 Relying on the agreement, Morado stopped paying rent and began work on a new building, paying for both the construction costs and the property taxes. Henry "was faithful to [the agreement]" during construction and even helped obtain building permits. Morado completed the new building in 2018.
¶5 In late 2019, Henry passed away. Around the same time, Morado subleased the property to a restaurateur who intended to open a taco shop. After discovering the restaurateur on the property, Henry's son Hector evicted her, having been unaware of both the oral agreement between Henry and Morado and the sublease between Morado and the restaurateur.
¶6 Morado sued Hector Bustamante. His complaint alleged breach of contract (Count 1), "specific performance/injunctive relief" (Count 2), tortious interference (Count 3), conversion (Count 4), and unjust enrichment (Count 5) Morado sought damages, specific performance, injunctive relief (including an order restoring his control over the building), disgorgement and restitution for any income or other benefits Hector had received by possessing and controlling the new building.
¶7 The parties filed cross motions for summary judgment. Bustamante disputed most of the pertinent facts, including Morado's tenancy, the timing of the roof collapse, and the existence of the oral agreement. Bustamante also argued that the agreement between Henry and Morado was unenforceable under the statute of frauds and Arizona's contractor licensing statutes. Morado conceded he had never been a licensed contractor but argued that because his lawsuit was for breach of a lease, and "not an action for compensation for construction work," he was thus not required to prove licensure.
¶8 After oral argument, the superior court granted summary judgment in favor of Bustamante and denied summary judgment to Morado. The court found that, because Morado was to receive a leasehold in exchange for rebuilding the house, he qualified as a contractor under Arizona's contractor licensing statute. See A.R.S. § 32-1101(A)(3)(a)(i) (defining contractor broadly to include "any person . . . that, for compensation, undertakes to or offers to undertake to . . . [construct, alter, repair, . . ., [or] improve . . . any building"). The court further found that Morado was not exempt from the licensing requirements under the statute's exemption for owner-builders because "[his] theory of the case [wa]s that he was not the [building's] 'owner' until he finished construction." See A.R.S. § 32-1121(A)(5) (exempting owners who improve structures on their property if the structures are "intended for occupancy solely by the owner" and "are not intended for sale or for rent.").
¶ 9 Because Morado had never held a contractor's license, the superior court concluded A.R.S. § 32-1153 barred his lawsuit. See A.R.S. § 32-1153 (making proof of license a prerequisite to civil action "for collection of compensation for the performance of any act for which a [contractor's] license is required"). Accordingly, without addressing the statute-of-frauds issue with the oral lease, the court dismissed Morado's lawsuit and awarded attorney's fees and costs to Bustamante. Morado timely appealed from the final judgment, challenging the court's decision to grant Bustamante summary judgment.
DISCUSSION
¶10 Morado argues that he is "not a contractor seeking compensation for renovating a building" and that he is entitled to enforce the terms of his oral lease under ARLTA. This case brings us to the intersection of the regulation of contractors, under Arizona's contractor licensing statute, and the regulation of residential landlords and tenants, which is governed by ARLTA. See A.R.S. §§ 32-1101 to -1188; see also A.R.S. §§ 33-1301 to -1381.
The parties did not address the impact of ARLTA in the superior court or in their initial briefing. After oral argument, we ordered the parties to submit simultaneous supplemental briefing on the interaction of the contractor licensing statute and ARLTA. Both parties filed supplemental briefs.
¶11 The superior court analyzed this transaction solely in terms of the contractor licensing statute. We agree with the court that, under that statute, Morado acted as a contractor without a license and that he would ordinarily be barred from seeking compensation for his construction activities. See A.R.S. §§ 32-1101(A)(3)(a)(i), -1153. This analysis, however, ignores that the parties were landlord and tenant, their agreement was a residential lease, and that ARLTA expressly authorizes rent-and-repair leases. See A.R.S. § 33-1324(C), (D) (authorizing landlord and tenant to agree that tenant will perform specified repairs and remodeling). The real issue here, aside from the statute-of-frauds issue with the oral lease, is whether the contractor licensing statute applies to rent-and-repair leases ARLTA authorizes.
Morado's subletting of the property for commercial purposes in 2019 may have removed the lease from ARLTA's ambit. See A.R.S. §§ 33-1304 (limiting ARLTA's application "to the rental of dwelling units"), -1310(4) (defining "dwelling unit"). But, because all of Morado's construction work predated the sublease, the enforceability of the lease under the contractor licensing statute turns on its interaction with ARLTA.
¶12 Summary judgment is appropriate "if the moving party shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. Rule 56(a). We review de novo the grant of summary judgment and questions of law, including matters of statutory interpretation. See Price v. City of Mesa, 236 Ariz. 267, 269, ¶ 7 (App. 2014).
I. Does A.R.S. § 32-1153 prohibit a tenant who is not a licensed contractor from enforcing a rent-and-repair lease?
¶13 Resolving this question requires us to construe A.R.S. § 33-1324 ("Landlord to maintain fit premises"). Our goal in interpreting statutes "is to effectuate legislative intent." Ariz. Chapter of the Associated Gen. Contractors of Am. v. City of Phoenix, 247 Ariz. 45, 47, ¶ 7 (2019). To do so," [w]e interpret statutory language in view of the entire text, considering the context and related statutes on the same subject." Molera v. Hobbs, 250 Ariz. 13, 24, ¶ 34 (2020) (internal quotation marks omitted). "If the language is clear and has only one reasonable meaning, we will apply that meaning." Id. If the language is ambiguous, however, we consider other indicators of legislative intent, such as the statute's subject matter, history, purpose, and consequences. Id. "When possible, we seek to harmonize statutory provisions and avoid interpretations that result in contradictory provisions." Premier Physicians Grp., PLLC v. Navarro, 240 Ariz. 193, 195, ¶ 9 (2016). We will not attempt to harmonize conflicting statutes, however, when doing so would produce an "absurd result that could not have been within the scope of legislative intent." State v. Wagstaff, 164 Ariz. 485, 492-93 (1990); see also State v. Green, 248 Ariz. 133, 135, ¶ 8 (2020) ("An interpretation is absurd if it is so irrational, unnatural, or inconvenient that it cannot be supposed to have been within the intention of persons with ordinary intelligence and discretion." (quotation omitted)).
¶14 Section 33-1324 requires residential landlords to "[m]ake all repairs and do whatever is necessary to put and keep the premises in a fit and habitable condition." A.R.S. § 33-1324(A)(2). That section authorizes a landlord to delegate "specified repairs, maintenance tasks, alterations and remodeling" to the tenant by agreement if certain conditions are met. A.R.S. § 33-1324(C), (D). A.R.S. § 33-1324 does not specify whether a tenant performing such work must be a licensed contractor, nor does it cross reference the contractor licensing statute. Given this silence, the plain language of A.R.S. § 33-1324 does not indicate whether the legislature intended the contractor licensing statute to apply to rent-and-repair leases.
Subsection C, which governs single family residences, states the following:
The landlord and tenant of a single family residence may agree in writing, supported by adequate consideration, that the tenant perform the landlord's duties [to provide receptacles and conveniences for waste removal and to supply water, heat, and cooling], and also specified repairs, maintenance tasks, alterations and remodeling, but only if the transaction is entered into in good faith, not for the purpose of evading the obligations of the landlord and the work is not necessary to cure noncompliance with [the landlord's duties to comply with building codes and to maintain the premises in fit and habitable condition].
¶15 The subject matter, history, purpose, and consequences of ARLTA, however, all weigh against application of the contractor licensing statute. In terms of subject matter, ARLTA governs all residential rental arrangements. See A.R.S. § 33-1304; U-Stor Bell, L.L.C. v. Maricopa Cnty., 204 Ariz. 79, 82, ¶ 18 (App. 2002) (explaining that ARLTA "governs all residential landlord and tenant rights and obligations in Arizona"). Common sense dictates that only a small percentage of residential tenants will also be licensed contractors. If the legislature had intended A.R.S. § 33-1324 to apply only in such limited circumstances, we doubt it would have worded that section so broadly as to ostensibly cover all residential tenants. This is especially true as ARLTA was passed in 1973, about 40 years after the enactment of the contractor licensing statute and its civil action bar. 1973 Ariz. Sess. Laws 600 (enacting ARLTA); 1931 Ariz. Sess. Laws 284 (enacting contractor licensing statute); 1933 Ariz. Sess. Laws 540-41 (adding civil litigation bar).
"Unless displaced by the provisions of [ARLTA], the principles of law and equity, including the law relating to capacity to contract, mutuality of obligations, principal and agent, real property, public health, safety and fire prevention, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy or other validating or invalidating cause supplement its provisions." A.R.S. § 33-1303. Absent from the enumerated principles are those related to contractor licensing, or professions and occupations more generally. See A.R.S. Title 10 ("Professions and Occupations"). This is consistent with the conclusion that A.R.S. § 33-1324 displaces the contractor licensing statute in the context of rent-and-repair leases.
¶16 The purpose of ARLTA was to protect tenants' rights and to improve the quality of housing in the residential setting. A.R.S. § 33-1302; Found. Dev. Corp. v. Loehmann's, Inc., 163 Ariz. 438, 444, n.9 (1990). The delegation provisions in A.R.S. § 33-1324 appear primarily concerned with protecting tenant's rights. Subsections C and D permit the landlord to delegate repair and maintenance tasks by agreement only if 1) the agreement is made in writing, in good faith, and supported by adequate consideration; 2) the delegation is "not for the purpose of evading the [landlord's] obligations"; and 3) "the work is not necessary to" put the premises back into fit and habitable condition. See A.R.S. § 33-1324(C), (D)(1), (2). Applying the contractor licensing requirements to rent-and-repair leases would not protect tenants. It would add a hidden requirement to A.R.S. § 33-1324 and give landlords a loophole that would allow them to avoid their statutory obligations, even in cases where, as here, a lease clearly violates A.R.S. § 33-1324's requirements.
While mindful of our obligation to affirm for any reason supported by the record, KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 236 Ariz. 326, 329, ¶ 14 (App. 2014), we are not convinced the parties' non-compliance with A.R.S. § 33-1324's writing and habitability requirements necessarily renders their oral lease agreement unenforceable. That issue was not addressed in the superior court proceeding and it has not been fully briefed on appeal. Morado argues that principles of waiver, estoppel, and part-performance excuse the parties' non-compliance with A.R.S. § 33-1324's requirements. See A.R.S. § 33-1303 (preserving background principles of law and equity including estoppel). Furthermore, not all contracts that violate a statute are unenforceable. See White v. Mattox, 127 Ariz. 181, 184 (1980); see also CSA 13-101 Loop, LLC v. Loop 101, LLC, 236 Ariz. 410, 411, ¶ 6 (2014); Mountain States Bolt, Nut & Screw Co. v. Best-Way Transp., 116 Ariz. 123, 124 (App. 1977).. In light of this authority and the parties' lack of opportunity to address the issue, we decline to decide whether A.R.S. § 33-1324's writing and habitability requirements provide a basis for dismissal of Morado's lawsuit. Nothing in this decision should be construed to prevent the parties from addressing this issue on remand, however.
¶17 The consequences of such a licensure requirement, as this case illustrates, would significantly undermine tenants' rights by nullifying the protections and remedies provided by ARLTA. ARLTA authorizes a tenant to recover damages and obtain injunctive relief "for any noncompliance by the landlord with the rental agreement or with . . . [A.R.S. §] 33-1324," as well as for unlawful eviction. A.R.S. §§ 33-1361(B), -1367. Based on Morado's version of events, his landlord breached the parties' lease agreement, violated A.R.S. § 33-1324 (by orally agreeing that Morado should rebuild his rental house after its roof collapsed), and unlawfully evicted Morado's subtenant. ARLTA authorizes Morado to recover damages and injunctive relief under those circumstances. Were we to hold the lease unenforceable under A.R.S. § 32-1153, we would be permitting a landlord to unlawfully delegate his repair duties, to evict a tenant who fully performs his obligations under a lease, and to avoid suffering the statutorily authorized consequences for doing so. Such a holding would be an absurd result that strictly contravenes the purposes of ARLTA. See A.R.S. §§ 33-1315(A)(1) (prohibiting a provision in a rental agreement under which a tenant "[a]grees to waive or to forego rights or remedies under [ARLTA]"), 1-211(B) ("Statutes shall be liberally construed to effect their objects and to promote justice.").
¶18 Bustamante argues that A.R.S. § 33-1324 cannot possibly serve as a safe harbor from the contractor licensing statute when, as here, the lease violates A.R.S. § 33-1324's requirements. While it makes sense to prohibit unskilled tenants from performing repairs necessary to cure habitability issues, it makes no sense to permit the contractor licensing statute to completely abrogate a tenant's remedies under ARLTA when a landlord attempts to delegate prohibited repairs or evade his statutory obligations. It would make even less sense to eliminate those remedies when a landlord, for example, enters into a rent-and-repair agreement in bad faith, for the express purpose of avoiding his obligations under the lease once repairs have been completed. Bustamante's interpretation of A.R.S. § 33-1324 would require such absurd results.
¶19 Furthermore, declining to apply A.R.S. § 32-1153 to rent-and-repair leases does not undermine the purpose of the contractor licensing statute. Cf. Aesthetic Prop. Maint. Inc. v. Cap. Indem. Corp., 183 Ariz. 74, 77-78 (1995) (holding A.R.S. § 32-1153 does not bar claim where contractor substantially complied with licensing requirements in a way that still served purposes of statute). The purpose of A.R.S. § 32-1153 is to prevent "unscrupulous, unqualified, and financially irresponsible contractors" "from deceiving and taking advantage of" the public. Aesthetic Prop. Maint. Inc., 183 Ariz. at 77; see also Sobel v. Jones, 96 Ariz. 297, 300 (1964). But residential landlords do not need protection from unqualified tenants who agree to perform repairs on their rental properties in exchange for rental obligations. Residential landlords usually have an advantage over their tenants in terms of sophistication, bargaining power, and information. See Found. Dev. Corp., 163 Ariz. at 444, n.9 (noting that landlord and tenant acts "compensate [tenants] for [their] lack of bargaining power and protect [the]m from victimization by adhesion contracts"). The fact that a residential tenant is not qualified to undertake major repairs, or lacks the financial resources to do so, should come as no surprise to a landlord.
¶20 In sum, considering the text, purpose, and consequences of ARLTA and Arizona's contractor licensing statute, we conclude ARLTA authorizes tenants to perform work and to pursue claims that would otherwise be prohibited by the licensing statute. We therefore hold A.R.S. § 32-1153 does not bar Morado from enforcing the parties' alleged rent-and-repair lease agreement. To be clear, we do not hold that a residential tenant may sue his landlord to collect monetary compensation based on the value of repairs performed. We hold only that a tenant without a contractor's license may sue to enforce a rent-and-repair lease and to pursue the remedies provided by ARLTA.
Because we conclude the licensing requirements do not apply to rent-and-repair leases under A.R.S. § 33-1324, we need not address Morado's arguments that he did not qualify as a contractor under A.R.S. § 32-1101(A)(3) and that he was exempt under the owner-builder exemption in A.R.S. § 32-1121(A)(5).
II. Statute of frauds
¶21 In the alternative, Bustamante argues that the statute of frauds bars at least some of the claims in Morado's complaint. Arizona's statute of frauds bars enforcement of an oral agreement "which is not to be performed within one year from the making thereof" or which is "for leasing for a longer period than one year." A.R.S. § 44-101(5), (6). Because the superior court disposed of the case on the grounds of A.R.S. § 32-1153, based on Morado's lack of a contractor's license, it did not reach Bustamante's statute-of-frauds argument.
¶22 The parties agree that the statute of frauds would ordinarily bar enforcement of the oral agreement at-issue here. They also appear to agree that the part performance exception to the statute of frauds is applicable and that equitable remedies, such as Morado's claim for specific performance, are available under that exception. See Owens v. M.E. Schepp Ltd. P'ship, 218 Ariz. 222, 226, ¶¶ 15-16 (2008). The parties disagree, however, on which of Morado's remaining claims also survive.
To the extent Bustamante disputes the applicability of the partial performance exception and the availability of the remedy of specific performance, he has waived that argument by failing to develop it. See ARCAP 13(a)(7), (b)(1); see also Boswell v. Fintelmann, 242 Ariz. 52, 54, ¶ 7 n.3 (App. 2017).
¶23 Bustamante first argues that Morado's breach of contract, tortious interference, and conversion claims are barred because they are not equitable claims. Part performance is an equitable doctrine, grounded in the principle of estoppel. Id. at ¶ 15. Because of its equitable nature, the doctrine permits only equitable remedies, such as specific performance, and not legal remedies, such as damages for breach of contract. William Henry Brophy Coll. v. Tovar, 127 Ariz. 191, 195 (App. 1980). Like breach of contract claims, conversion and tortious interference claims sound in law, not equity. Weaver v. Weaver, 131 Ariz. 586, 588 (1982) (J. Gordon, concurring) ("Torts sound in law, not in equity"); Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Loc. No. 395 Pension Tr. Fund, 201 Ariz. 474, 493-94, ¶¶ 73, 78 (2002) (explaining that tortious interference with contractual relations is intentional tort).
¶24 Tortious interference, however, requires a plaintiff to prove a contractual relationship "with another," not with the defendant. Snow v. W. Sav. & Loan Ass'n, 152 Ariz. 27, 33 (1986). And here, Morado did include one page of his subtenant's lease along with his statement of facts. In any case, Bustamante has not cited any case that holds that a written contract is required to prove an intentional interference claim. Thus, Morado's breach of contract and conversion claims are barred by the statute of frauds, but his specific performance and tortious interference claims are not.
¶25 Bustamante also argues Morado's unjust enrichment claim fails as a matter of law because the parties' contract governs their obligations. While a valid and enforceable contract "specifically governing the rights and obligations of each party precludes recovery for unjust enrichment," US Life Title Co. of Ariz. v. Gutkin, 152 Ariz. 349, 354 (App. 1986), an unenforceable contract does not likewise bar recovery. See W. Corr. Grp., Inc. v. Tierney, 208 Ariz. 583, 590, ¶ 27 (App. 2004) ("Quantum merit damages are available for services performed under an unenforceable contract . . . ."); Costanzo v. Stewart, 9 Ariz.App. 430, 432-33 (1969) (rejecting argument that statute of frauds barred recovery for unjust enrichment); see also Restatement (Third) of Restitution and Unjust Enrichment § 2, cmt. c (2011) (explaining that restitution is subordinate to contract remedies, when available, but that the principle "that there can be no unjust enrichment in contract cases is plainly erroneous"). As our supreme court explained in Trollope v. Koerner,
A landlord, like any entrepreneur, is vulnerable to the vagaries of the marketplace. His legal position, however, is a strong one. He owns the land, and he has at his side the well-settled law of trespass. He may condition use of his land on such terms as he chooses. If [h]e stands by while another, assuming himself to be a lessee under an oral agreement, makes substantial improvements, [h]e may well be held estopped to deny the lease.106 Ariz. 10, 18 (1970). Since the parties' oral contract is unenforceable and does not govern their obligations, Morado's claim for unjust enrichment is not barred by the statute of frauds.
CONCLUSION
¶26 For these reasons, we vacate the superior court's orders, in its July ruling and its September final judgment, to the extent they granted summary judgment on and dismissed Morado's claims for specific performance, tortious interference, and unjust enrichment. We also vacate the orders in the final judgment that awarded costs and attorney's fees to Bustamante. We otherwise affirm the court's orders and remand for further proceedings.
¶27 In our discretion, we deny Bustamante's request for attorney's fees on appeal pursuant to A.R.S. § 12-341.01(A) without prejudice, to allow him to request appellate fees at the conclusion of the litigation in the superior court. As the successful party on appeal, Morado is entitled to his taxable costs on appeal upon compliance with ARCAP 21.